Kazakhstan, Paradise Papers: Offshore Propped Up by Bailed-out Bank

Nov 6, 2017

A trove of documents obtained by German newspaper Suddeutsche Zeitung has shed light on how co-founders of an intensely nebulous, Bermuda-based offshore investment vehicle, Meridian Capital, obtained generous loans from a major Kazakhstani bank whose survival was only made possible by multibillion dollar government bailouts.

That is among multiple revelations in an article published over the weekend by the Organized Crime and Corruption Reporting Project, or OCCRP — one in a consortium of outlets poring through 6.8 million confidential records leaked from Bermuda law firm Appleby, which handled paperwork for Meridian, a highly diversified entity involved in the energy, real estate, mining, banking, aviation and transportation sectors.

In another explosive detail, the OCCRP reported the hitherto unknown fact that one of Meridian’s founders appears to have been Sauat Mynbayev — current chief executive of Kazakhstan’s state-owned KazMunaiGaz oil and gas company, and a former oil and gas minister, from 2010 to 2013.

But it is the alleged role of Kazkommertsbank that is going to cause the government most headaches in the foreseeable future.

OCCRP claimed in their report that Appleby data shows that other Meridian co-founders included “top executives and shareholders of Kazkommertsbank,” a lender that now operates under the Qazqom brand.

“It was this bank that provided the easy credit that made Meridian an empire that now stretches from the United States to Europe, Africa, Asia, and even Australia,” the report noted. “[The] leak reveals that the group used a large portion of the bank’s deposits to fund project after project. This enabled them to grow quickly, and at little risk to themselves.”

But one piece of correspondence from an unidentified central bank official states that whenever Meridian projects would fail, the losses would simply be dumped onto the bank’s books.

This is significant as Kazkommertsbank has endured severe liquidity crises that prompted the government in March to use $7.5 billion in state funds to clear the institution’s mountain of bad loans. That bailout was rushed through in advance of a merger between Kazkommertsbank and another top lender, Halyk Bank, which is controlled by President Nursultan Nazarbayev’s second daughter, Dinara, and her husband, Timur Kulibayev.

The OCCRP said it was unable to estimate the extent of the damage caused to state coffers by Kazkommertsbank’s lending to Meridian, but suggested that “Kazakhstan’s citizens could be on the hook for billions of dollars.”

The timing is mortifying for Nazarbayev, who publicly complained only a few days ago about purported shenanigans at RBK Bank — far smaller entity than Kazkommertsbank. Shady practices at that lender, the president said, has culminated in accountholders being unable to access their savings.

“Thieves should go to jail, which is where they will be sent,” Nazarbayev said on November 3, speaking to a congress of the ruling Nur Otan party.

Unlike for Kazkommertsbank, there has been no talk yet of a bailout for RBK.

Still, Kazkommertsbank is likely to be shielded from excessively nosy coverage in local media, which is almost all largely loyal to the authorities. On November 6, some online outlets had cursorily referred to the OCCRP report and the wider document leak, which has been branded Paradise Papers, but without dwelling on any of the specific details or mentioning the Kazkommertsbank connection. Almost all local reports are straight pick-ups of a sweeping article on Paradise Papers by Russia’s TASS news agency.

The government will likely be actively engaged in containing the damage.

When unsubstantiated rumors began spreading last week, via a popular mobile phone communicator app, about Kazkommertsbank being on the verge of bankruptcy, the bank was swift to put out a statement of denial.

“To protect the interests of the bank, we have filed a statement with law enforcement bodies with the aim of finding the source disseminating the rumor,” Kazkommertsbank said in its statement.

As of the late afternoon on November 6, Mynbayev had yet to make a public statement about a report that identified him as once controlling 18.75 percent of Meridian. The OCCRP supported that claim by citing a 2006 document that named Askar Alshinbayev, Yevgeniy Feld, Nurzhan Subkhanberdin, Nina Zhussupova, Azat Abishev and Ian Connor as the other shareholders. OCCRP cited a much more recent UK disclosure by Meridian as naming Alshinbayev, Subkhanberdin and Feld as beneficiaries, but not Mynbayev.

Meridian certainly seems to have proven lucrative for its owners.

Previously leaked notes from a 2005 meeting between Connor and officials with HSBC has the Meridian shareholder estimating the company’s assets at around $1.2 billion.

“In that meeting, Connor … said he had received a $9 million dividend payment from the group the previous month,” OCCRP reported.

Connor said Meridian’s investment ranged included Kazakhstani gold and oil companies and a mine in South Africa.

As OCCRP has documented, the chronology of Meridian’s rise appears to closely track successes in Mynbayev’s career. Meridian was founded in 2002. The following year, Mynbayev was appointed deputy prime minister. In 2006, he took over as head of the Samruk sovereign wealth fund. From 2007 through to 2013, he was charged with ministerial portfolios that gave him ample responsibilities over the country’s energy sector. That role became even more explicit in 2013, when he took over the helm at KazMunaiGaz.

“In these positions, running a business empire fueled by oil would have been unacceptable and possibly illegal,” OCCRP suggested in its report.